Federal Court And Administrators Continue To Adapt To A Post-pandemic World - Insolvency/Bankruptcy

The Federal Court has permitted administrators to give notice of creditors' meetings electronically, and to hold creditors' meetings and future meetings of any committees of inspection by video or telephone conference.

Key Takeaways

Administrators were allowed to issue notices and convene meetings of creditors digitally.
This decision is consistent with recent efforts by courts and the legislature to adapt to COVID-19 restrictions.
In the current climate, in appropriate cases, courts will assist administrators to carry out their duties in an efficient and cost effective manner, including by extending the time to disclaim property.

What happened?

The first plaintiffs were appointed as joint and several voluntary administrators of the following companies:

Techfront Australia Pty Ltd;
Screencorp Pty Ltd; and
Techfront Infrastructure Solutions Pty Ltd,
(together, the Companies).

The Companies were part of an international corporate group known as the Global Sports Commerce group of companies (Group).

By an originating process filed on 17 April 2020, the administrators and each of the Companies sought orders enabling them to carry out the administration of the Companies in a way that accommodated the difficulties created by the State and Federal measures to suppress COVID-19.

What were the issues?

The plaintiffs sought orders of an administrative kind that would permit the administrators to:

conduct meetings of the Companies' creditors by audio-visual or telephone conference only;
send notices by email to those creditors for whom the administrators had email addresses; and
with respect to any committee of inspection formed for any of the Companies, hold meetings by audio-visual or telephone conference only and also permitting members of any such committee to send and receive notices by email.

The plaintiffs also sought a two week extension of the time of the disclaimer period under s 443B of the Corporations Act 2001 (Cth) (Act) which, in this case, was relevant to lessors of certain equipment and motor vehicles.

What did the Court decide?

Farrell J made the orders sought by the administrators having regard to the matters set out in s 447A of the Act and s 90-15 of the Insolvency Practice Schedule (Corporations) being Schedule 2 to the Act.

Notices of meetings of creditors

The administrators submitted that they faced practical difficulties arranging for notices to be printed and posted given the restrictions on gatherings imposed to limit the spread of COVID-19.

Her Honour found the following steps would notify as many creditors of the Companies as quickly and cheaply as possible:

issuing notices of creditors' meetings by email (noting that the administrators had email addresses for a large number of creditors);
publishing the notice on KPMG's website; and
publishing the notice on the website for notices operated by the ASIC.

This method would be more efficient and save on costs, a benefit which would ultimately accrue to creditors of the Companies.

Further, the measures were appropriate given limits imposed on gatherings of people designed to suppress the spread of the COVID-19.

Meeting of creditors

The administrators submitted that, while r 75-75 of the Insolvency Practice Rules clearly authorised participation in meetings of creditors by electronic means, the requirements of the relevant rules suggested that meetings needed to be conducted at a "place", such that it was not clear whether meetings could be held by electronic means only. The administrators sought clarity on this issue.

Her Honour found the administrators (and the creditors) should not be left in doubt as to whether a meeting had been validly convened and held. To allow doubt would open up avenues of dispute about the validity of resolutions and may necessitate further applications for validation.

Accordingly, Her Honour ordered that the administrators be permitted to hold meetings of creditors by telephone or audio-visual conference facilities only, with details of such arrangements to be included in the notices issued to creditors.

Committee of inspection

The administrators conceded that such orders may not be necessary given the terms of r 80-5(3) of the Insolvency Practice Rules, which provides that the committee can meet at times and places that the members appoint.

However, there is nothing in that rule which specifically permits meetings to be held only by audio-visual or telephone conference facilities, nor does it specifically permit notice to be given to, or by, members of the committee solely by email.

Her Honour accepted that the administrators and members of any committee should not be left in any doubt as to the validity of any resolution passed at meetings convened and held in that manner.

Her Honour also considered it appropriate to make the order even though a committee of inspection did not then exist, since it would involve further time and cost to approach the Court for such an order if the committee was constituted, and that time and cost could be avoided by making the order.

Extension of time

Pursuant to s 443B, the administrators would be personally liable for rent and other amounts payable under the relevant leases within 5 days after the beginning of administration unless they provided lessors with disclaimer notices.

The administrators submitted that an extension of time for these notices was required so that the administrators could ascertain and properly consider the exact subject matter of the leases and then decide whether those leases were required for the purposes of ongoing trading activities.

Her Honour concluded that it was appropriate to make the orders sought by the administrators so as to provide, in general, for an extension until 1 May 2020.

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